China Law Insight : China Business and Intellectual Property Lawyers & Attorneys : King & Wood Law Firm : IP, Arbitration, Litigation, Securities, Foreign Investment

One alternative may be found in the Chinese Copyright Law. Article 3 of the Copyright Law of the People's Republic of China (Revised in 2010) provides copyright protection to written works, photographic works, sketches and other graphic works. The purpose of copyright law is intended to protect expressions of ideas and concepts for promotion and development of literary, artistic and scientific works.

On the other hand, trademark laws are commercial devices intended to provide trademark holders with the exclusive right to use a trademark to distinguish his goods and services from other traders to prevent public confusion. Although copyright law is intended to enhance art, culture and the sciences, and not protect brand owners, the law is sufficiently broad to offer a brand owner limited protection in some situations.

A word or simple phrase may be protected as a trademark but it may not be adequately expressed to obtain copyright protection. Unless a word phrase is comprehensive enough to express a thought, idea or concept, chances are it may not be protected by copyright. On the other hand, copyright does recognize photographic work, sketches and other graphic works as protectable works. Use of artistic designs, patterns, logos, devices, photographs or other artistic works alone or in conjunction with word marks as trademarks may allow a brand owner to be protected by the copyright law in China.

There are differences between the two types of intellectual property laws. Trademark protection may be of indefinite duration so long as the trademark holder continues to use the trademark to identify itself as the source of the covered goods and services and pays the necessary maintenance fees. On the other hand, where the copyright is held by the individual author, protection generally lasts the author’s life plus 50 years following his death. If the right is held by a legal entity, protection is for 50 years after its first publication. Trademark protection is tied to the specific mark for the class of goods and services for which the trademark is registered. Copyright protection is not so limited but covers usage of the protected work in different mediums and for different purposes. Copyright protection extends to translations and modifications of the protected work while trademark protection is tied to the registered mark itself.

The differences in protection reflect the differences in the purposes of the two sets of laws. Yet, the overlap between these laws may give brand owners limited protection in situations where protection of trademark law is unavailable. To be protected, brand owners must understand the intentions and purposes of copyright law and create works that fall within its protection.
 

Advertising slogans, composed of words in the form of phrases, formally possess both the characteristics of both literal works and trademarks. Therefore, in principle, they can be the protected by the PRC Copyright Law ("Copyright Law") and the PRC Trademark Law ("Trademark Law").

Trademark Protection

The Trademark Law provides that:

"Any visual signs of words, devices, letters, numerals or any combination of the above elements, which being able to distinguish the goods or service of one entity from the others, can be registered as trademarks."

Accordingly, advertising brand names consisting of words are acceptable for trademark. As to whether registration is granted, all trademarks go through an official examination to determine if they possess due distinctiveness and can function as indicators the products they represent. In terms of common word marks, the trademark law does not require a word mark to be original or coined in order to achieve distinctiveness. Generally, as long as the words used by a trademark are not the generic name of the goods or does not directly indicate the features of the products, they are considered distinctive and capable of distinguishing its origin. Hence, "Apple", "Great Wall" and other dictionary words possess just as much distinctiveness as the coined words "NEC", "TCL".

Second, the words used by a brand trademark need not be totally unrelated to the features of the products. For instance, "Safeguard" indicates the features of the products in certain a way, but as long as the indication is not a direct description, the mark does not typically lose its distinctiveness.

However, the examination on trademarks for slogans tends to be more stringent both in terms of the examination criteria employed and in its application by the trademark authorities. According to the Examination Criteria issued by the Trademark Office, a slogan that does "not indicate the characteristics of the products" is one of the most elementary requirements for the registration of a slogan trademark. In addition, slogan trademarks should be original and non-popularly used, which sets a higher threshold in the judgment of their distinctiveness and thereby greatly increases the difficulty in getting them registered in the PRC.

As to whether a trademark is original, it is not difficult to judge in the case of common word marks. Non-dictionary words can most easily be regarded or alleged as "original" words, such as "Haier", "Canon" and "Philips". It seems that applying words in a non-dictionary or non-traditional way, an applicant can relatively easily meet the "originality" component.

The originality of slogans, on the other hand, is not so easy to ascertain. As a short phrase consisting of words, the purpose of slogan is to promote the concept, culture and image of the enterprises and their products, which requires it to be expressed in a way familiar and comprehensible to the general public. Hence, slogan trademarks cannot differ far from the language used by people in daily life. There may be some uniqueness in the sentence structuring, but the slogan ultimately cannot avoid being tinted with a sense of popularity. As such, the originality of a slogan is intrinsically hard to demonstrate.

As different people can have different views and feelings on what is popularly used, this makes Trademark Office's examination subjective and uncertain. The following slogans have previously applied for registration as trademarks: "The world swings with me", "Inspiration lights life", "Your vision, Our future", "Listening creates the future", "Sense the world, foresee the future" and "Share the moment, share the life" of which the Trademark Office directly approved the registration for "The world swings with me", "Inspiration lights life" and "Your vision, Our future", while rejecting the rest for lack of distinctiveness. The Office even makes a contradictory conclusion to the same slogan applied for different goods. For example, the Eastman Kodak Company's slogan "Share the moment, Share life" was approved in for pictures, but was denied in for cameras.

However, Article 11 of the Trademark Law provides that slogans that lack distinctiveness cannot be registered as trademarks with the exception of "those that have acquired distinctiveness through use ". According to this provision, if the slogans have established sole association with certain enterprises in the public recognition through use and are capable of functioning as a distinguisher of their source, they can be granted with trademark registration. As this exceptional provision further increases the threshold of registration, meanwhile it has opened a new path for the registration of slogan trademarks. Having met the requirements of this provision by proving the acquired distinctiveness through use, the slogans mentioned above, i.e. "Listening creates the future" of KENWOOD, "Sense the world, foresee the future" of OMRON and "Share the moment, Share the life" of Kodak, which were preliminarily rejected by the Trademark Office, have eventually all been approved for registration.

However, a cooperation agreement is hard to reach since the parties have different expectations. For example, the Chinese franchisee generally wishes to obtain permanent exclusive distribution rights within China, and would not want to be restricted to a subordinate position forever. On the other hand, the franchisor must maintain the quality of products and services provided by the franchisee, or risk damaging the reputation of brand.
 

Therefore, it is important to find a structure which will not only satisfy the franchisee, but also provide sufficient protection for the franchisor' s brand. As such, the franchisor may consider setting up a joint venture ("JV") with the franchisee, and assign the brand's Chinese trademark rights to the JV. As a shareholder in the JV, the requirement of "being in control" of the franchisee is more or less satisfied. At the same time, as a shareholder of the company, the franchisor, although it may be unable to have total control of the operation, may also be able to become involved in the company management thereby reducing some operational risks.
 

However, it should be noted that in circumstances where the JV pays a trademark transfer fee and the trademark rights are transferred to the JV, the JV itself will be the owner of trademark rights in China. As the PRC Trademark Office will not accept assignment with restrictions, it is thus impossible to require the Trademark Office to examine conditions attached with the assignment agreement. As a result, if the two parties of the assignment have any disputes over the terms and conditions of the assignment, they can only bring the matter to the court or an arbitration body. This is to say that, once the Trademark Office has approved the trademark assignment, the franchisor cannot reclaim the trademark in the event of disputes.
 

Suggestions for a Franchisor
 

A. Choose your franchisee wisely
 

When the franchisor evaluates a franchisee, it not only needs to have a thorough understanding of the franchisee's strengths, but is also required to look into the franchisee's experience with protecting its own business model, business philosophy, and its own brand. Moreover, even after the franchisor has selected its franchisee, it must be sure to strictly control and monitor its franchisee, and prevent any actions that are inconsistent with its brand image, even if it has to consider termination of the franchising agreement.
 

B. Develop a long term global strategy

In practice, the Chinese market has shown that some of the world's leading multinational corporations which have a well-established network of trademark rights in western countries often neglect to develop a Chinese trademark strategy until they are ready to enter the Chinese market. However, these companies often find it difficult to register their brands, because their brands have already been registered by some other companies in China, or there are already a number of similar trademarks in the Chinese market. In order to unify a global brand, these companies have had to temporarily slow down their expansions, and address the companies' trademark issues first.

Another common problem that multinational corporations face is ineffective Chinese interpretation of their trademark. They often believe that all they need is a Chinese translation of their trademark. However, most Chinese consumers believe that the "Chinese translation" is a trademark of a Chinese product, while a foreign trademark is the corresponding translation. The foreign companies will be placed in a very passive position if the Chinese version of their trademark becomes well-known, and they cannot effectively file their trademark registration.

It is more common that franchisors forget to protect Chinese versions of their brands' domain names and keywords, and thus, they get registered by others. If a company has protected the rights of its Chinese trademark, it can easily acquire a domain name that someone else has registered by using the PRC' s laws against cyber-squatting. However, if the trademark has been registered only in a foreign language, it will be very difficult to defend.

C. Ensure the enforceability of the terms of its agreement

A particularly difficult issue for franchising parties to resolve is how to restore the status quo between the parties when a dispute arises. Apart from the problems caused by the nature of dealing with intangible assets, many other problems arise from the procedures that each country's intellectual property regime imposes and the difficulty of implementing a foreign judgment in another country. Therefore, it is very important for the parties of a franchising agreement to consider national procedure laws and relevant international laws to reduce the risk that the franchise agreement will not be enforceable.

D. Consider franchisee a “regional franchisor” by developing a strong partnership.

Franchisor should stop considering the franchisee a regional agent but a true partner in a brand. This will change the franchisee from being the franchisor's agent to the franchisor's regional franchisor in China, and will enable the brand owner to promote its brand while taking advantage of the franchisee' s knowledge of the consumer market in China.